Bank recap to be dependent on performance, reforms, says Finance Ministry official

Loans above Rs 250 will be monitored: Rajeev Kumar

Author Orlando Mckenzie

26 January, 2018

It announced that Rs 1,35,000 crore would be infused through recapitalisationbonds, which would be issued by the government and would be subscribed by public sector banks in lieu of the capital they get from the government.

The government yesterday said it will infuse an unprecedented Rs 88,139 crore capital in 20 public sector banks (PSBs) before March 31 to boost lending and revive growth.

The government will ensure disbursement of 1 lakh crore rupees to PSU banks by march this year. Following IDBI Bank, we have Bank of India with 12.6 per ecnt of gross NPA receiving Rs 9,232 crore, UCO Bank with 19.74 per ecnt of gross NPA at Rs 6,507 crore, Central Bank of India with 17.27 per ecnt of gross NPA at Rs 5,158 crore, Indian Overseas Bank with 22.73 per cent of gross NPA getting Rs 4,694 crore. "The entire objective of this exercise has been that it is government's prime responsibility to keep PSBs in good health", Jaitley told reporters at a press meet. In the current round, IDBI Bank got the biggest capital injection at Rs 10,610 crore. Additionally, Rs 18,000 crore is proposed to come from budgetary allocation and the balance Rs 58,000 crore would be raised by the banks through capital markets. The government has specifically asked the banks to use much of the recap funds for lending to the SME sector.

Mr. Kumar said the recapitalisation amount for PCA banks would be used for support to maintain their regulatory capital requirements, and to strengthen their governance and operations.

Giving presentation on banking reforms, Secretary Department of Financial Services, Rajeev Kumar said, repositioning PSBs will lead the growth and serve people responsibly and responsively.

Banks, especially state-owned ones, have been saddled with non-performing assets (NPAs), mainly across six major sectors- steel, power, roads, highways, and telecom-and are now in the process of revival given the pile-up of bad loans that threatens to negatively affect their growth. Recapitalisation of banks under the PCA framework will allow them to reduce the NPAs as well as improve capital ratios. The recap plan would enable additional credit offtake capacity of PSBs by more than Rs 5 lakh crore, Kumar claimed. State-run lenders account for more than two-thirds of the country's banking assets. "It's the bare minimum level of capital the weak banks need to stay afloat", said HDFC Bank Chief Economist Abheek Barua. "Small banks could do well in the near term, given the quantum of capital; however, returning to normalised return on equity will probably take a long time", the report warns.

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